The economics of the dosa: Rajan on why it costs so much

Raghuram Rajan has a reputation for being able to think outside of the box and handle the most unexpected problems; a talent put to the test when the RBI governor was asked why the South Indian dosa continued to be costly despite claims of victory over inflation.

Rajan attributed the high prices to the discrepancy between the means of production and the workers’ wages.(REUTERS)

Raghuram Rajan has a reputation for being able to think outside of the box and handle the most unexpected problems; a talent put to the test when the RBI governor was asked why the South Indian dosa continued to be costly despite claims of victory over inflation.

Rajan attributes the high cost to the discrepancy between the traditional tawa preparation and the wages of the person making it.

‘The technology for making dosas hasn’t actually changed. Till today that person puts the batter on the tawa, spreads it around and then takes it out, right? There has been no technological improvement there.

“However, the wages that you are paying to that gentleman, especially in a high-wage sort of state like Kerala, are going up all the time,” Rajan said.

The RBI Governor was replying to a question from a dosa-loving engineering student at a Federal Bank event on Saturday night.

“In real life, I have a query on Dosa prices -- when inflation rates go up, Dosa prices go up, but when inflation rates are lower, the Dosa prices are not lowered. What is happening to our beloved Dosa, sir?” she asked.

Rajan replied that the workers can be used in many areas where productivity has gone up in many sectors, such as banking and factories, complemented by modern technological upgrades. That, however, is not the case for dosa-makers, explained Rajan.

“So, what happens is that in an economy which is growing and when there are sectors which are improving technologically while other sectors are not improving their technology, the prices for the goods manufactured by sectors, that are not improving their technology, will go up faster.